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At least three Chinese-linked vessels reportedly turned back abruptly after attempting to cross the Strait of Hormuz last Friday, signaling an unusual move in typically friendly Tehran‑Beijing relations amid the ongoing regional crisis.

Two ships owned by China’s state‑run Cosco Shipping, the CSCL Indian Ocean and CSCL Arctic Ocean, as well as Hong Kong-owned Lotus Rising made sudden U‑turns near Larak Island, according to ship‑tracking service MarineTraffic and research group FDD. The narrow channel has repeatedly been described as Iran’s de facto “toll booth,” with the Islamic Revolutionary Guard Corps (IRGC) Navy, allowing passage only for authorized vessels.

This was the first attempted outbound transit by major Cosco container ships since tensions in the Strait of Hormuz began on Feb. 28, triggering disruptions to 20% of the world’s oil supply. 

The ships reportedly violated Iranian rules banning traffic to and from countries considered supportive of the United States and Israel, including the UAE and Saudi Arabia, according to an IRGC statement cited by IRGC-affiliated outlet Nour News.

OIL HAS SURGED SINCE THE IRAN CONFLICT, BUT GAS PRICES MAY NOT BE DONE RISING.

“Three container ships of different nationalities attempted to move towards the designated corridor for licensed ships, which were forced to return after being warned by the IRGC Navy,” the outlet said Friday afternoon. 

“Sailing of any ship ‘to and from’ the ports of the allies and supporters of the Zionist-American enemies to any destination and from any corridor is prohibited,” it added.

IRAN WAR FUELS ASIA ENERGY CRUNCH AS INDIA, JAPAN, OTHERS FEEL STRAIN

It is not immediately clear why the vessels halted their transit, but the Cosco ships have reportedly visited ports in enemy countries considered hostile since mid-February, including Jebel Ali in Dubai; Dammam in Saudi Arabia; and Khalifa Port in Abu Dhabi, United Arab Emirates, according to maritime outlet Lloyd’s List.

Analysts noted that the ships may have lacked proper paperwork or authorization to transit the Strait of Hormuz, and safe passage could not be guaranteed, the outlet added.

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The incident highlights a gap between Iran’s earlier diplomatic assurances that China and other friendly nations, including Russia and India, could coordinate safe passage through the Strait of Hormuz.

The CSCL Indian Ocean and CSCL Arctic Ocean had also broadcast messages on their identification systems signaling that they had Chinese owners and crew as a precautionary move to signal friendliness to Iran, Reuters reported, but the effort was apparently deemed insufficient by Iranian authorities at the checkpoint.

Reuters contributed to this report.

UK businesses are entering the latest global energy shock in a significantly weaker financial position than during the 2022 Ukraine crisis, raising concerns that the current conflict in the Middle East could trigger a faster and more severe wave of corporate distress.

New data from the Weil European Distress Index shows that financial pressures on European companies had already moved into “distress territory” before the escalation of tensions involving Iran, leaving firms with far less capacity to absorb another energy-driven shock.

The index, compiled by law firm Weil, Gotshal & Manges, tracks the performance of more than 3,750 listed companies across Europe using indicators such as cashflow pressure, debt levels and returns on investment. It recorded a reading of 2.5 ahead of the current crisis, compared with -7 in February 2022, just before Russia’s invasion of Ukraine, indicating a marked deterioration in corporate resilience.

The latest crisis has been driven by disruption to global oil and gas supplies, particularly through the Strait of Hormuz, a key shipping route that carries around a fifth of the world’s energy exports. Escalating tensions, including attacks linked to Iranian-backed groups, have raised concerns about alternative routes such as the Red Sea also becoming unstable.

As a result, energy prices have surged sharply, with Brent crude climbing from around $60 at the start of the year to close to $115 a barrel. The spike is already feeding through into higher costs for businesses, from manufacturing and logistics to food production.

Andrew Wilkinson, a restructuring partner at Weil, warned that the pace of change is a key risk factor.

“If energy prices remain elevated and confidence continues to weaken, we could see stress build more quickly than in previous cycles,” he said.

Among major European economies, the UK is seen as especially vulnerable. The index ranks Britain as one of the most distressed markets in Europe, behind only Germany and France, but identifies it as the most exposed to rising borrowing costs.

The resurgence in inflation, driven largely by higher energy prices, is expected to limit the ability of the Bank of England to cut interest rates, with markets increasingly pricing in the possibility of further tightening.

Higher rates would increase the cost of servicing debt for businesses, many of which are already operating with reduced financial headroom after several years of economic disruption.

The UK’s economic backdrop adds to the concern. Recent data from the Office for National Statistics showed that growth stalled in January, highlighting the fragility of the recovery even before the latest energy shock.

At the same time, unemployment has risen to 5.2 per cent, its highest level since early 2021, further weighing on economic momentum and consumer demand.

The combination of weak growth, rising costs and tighter financial conditions creates a challenging environment for businesses, particularly those with high energy exposure or significant debt burdens.

The outlook is further clouded by global factors. The OECD has already warned that the UK is likely to suffer the largest growth hit among G20 economies as a result of the conflict, underlining the scale of the challenge.

Rising energy costs are also expected to squeeze household incomes, reducing consumer spending and adding another layer of pressure on businesses.

Unlike in 2022, when many companies entered the energy crisis with relatively strong balance sheets and access to cheap financing, today’s environment is characterised by higher debt levels and tighter credit conditions.

This leaves firms with fewer options to absorb shocks, increasing the risk of insolvencies and restructuring activity if conditions deteriorate further.

The latest data suggests that the current energy crisis could unfold more rapidly than previous episodes, with financial stress building at a quicker pace across the corporate sector.

For the UK, the combination of high energy dependence, rising interest rates and weak growth creates a particularly challenging mix.

As the conflict in the Middle East continues to evolve, businesses face a period of heightened uncertainty, one in which resilience will be tested and the margin for error is significantly reduced.

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Stocks plunged and oil prices spiked as Iran-backed Houthi forces joined the conflict, prompting a US military buildup and raising fears of prolonged war and economic damage.

Key Details:

• Japan and South Korea markets fell over 4%, MSCI Asia Pacific down 2.4%; US and European futures also declined
• Brent crude jumped 3.4% to $116/barrel, up 91% YTD; Macquarie warns oil could hit $200 if Strait of Hormuz remains closed through June
• Aluminum rose 6% after Iran attacked regional production sites; gold dipped 0.8% to ~$4,450/oz
• Trump signaled possible deal with Iran allowing 20 oil vessels through Hormuz, but Israel struck Tehran and Saudi Arabia intercepted drones
• Recession risk rising — Goldman Sachs at 30%, Pimco >33%; bond managers preparing for economic slowdown and yield declines

The 2026 Iran war has exposed a fundamental contradiction in the economic architecture of the conflict, with the US imposing enormous costs on many of the same economies it relies on as trading and strategic partners.

The conflict has also highlighted the importance of resilience investments, with nearly three in four business leaders prioritizing resilience as a driver of growth rather than a cost. The global price tag of war in the Middle East is expected to be significant, with the IEA warning of a major energy crisis and the World Economic Forum’s Global Risks Report 2026 highlighting the economic implications of the conflict.

Investors are increasingly pivoting toward capital preservation strategies as mounting concerns over prolonged geopolitical conflict, surging energy prices, and persistently elevated interest rates converge to fuel fears of a broad-based global economic slowdown. The shift in sentiment has been swift and decisive — risk assets have come under pressure as portfolio managers reduce exposure to equities and other volatile instruments in favor of safer havens such as short-duration bonds, gold, and cash equivalents. Markets are now pricing in a significantly higher probability of recession, with key indicators — including inverted yield curves, weakening manufacturing data, and tightening credit conditions — reinforcing the view that the global economy may be heading into a prolonged contractionary phase. Central banks, already under pressure to balance inflation control with growth support, face an increasingly narrow path forward, leaving investors with little confidence that a soft landing remains achievable.

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Oil prices extended their skyrocketing rally on Monday, with Brent crude futures rallying more than 3% to near the $120 per barrel mark amid growing expectations of US troops conducting a ground offensive in Iran, further intensifying the war in the oil-rich Middle East.

President Donald Trump-led US administration is preparing for weeks of ground operations in Iran, the Washington Post reported yesterday. US Central Command said on X that it has deployed 3,500 Marines and sailors to the Middle East aboard the USS Tripoli, marking the largest American military buildup in the region in two decades.

Iran’s parliament speaker, meanwhile, warned that the country’s forces were “waiting for American soldiers” and would “rain fire” on any US troops attempting to enter Iranian territory. In his message, reported by Iranian state media, Ghalibaf also said: “The enemy signals negotiation in public, while in secret it plots a ground attack”.

Additionally, Yemeni Houthis launched their first attacks on ⁠Israel over ‌the weekend, widening the ongoing war and adding to inflation woes.

These developments led to a rise in worries for prolonged supply disruption for oil, spurring the rally in oil prices. Brent crude futures jumped over 3.4% to trade at $116 per barrel, while West Texas Intermediate (WTI) futures gained more than 3% to trade at $103 per barrel, as seen at around 8 am IST.

The war, which began earlier this month with US-Israeli strikes killing Iran’s former supreme leader Ayatollah Ali Khammenei and resulting in massive retaliation from Tehran, has spread across the Middle East. Fear now rises for a ground offensive and the entry of Yemen’s Iran-aligned Houthis.
Pakistan said it was preparing to host “meaningful talks” to end the prolonged war in the coming days, although Iran said it is ready to respond if the United States launches a ground operation.

What lies ahead?

Macquarie has warned that crude prices could surge to an unprecedented $200 a barrel if the Iran conflict drags into mid-year and keeps the vital Strait of Hormuz shut. “If the strait were to stay closed for an extended period, prices would need to move high enough to destroy a historically large amount of global oil demand,” the Macquarie analysts said in the March 27 report, as reported by Bloomberg. “The timing of the re-opening of the straits, and physical damage to energy infrastructure, is the main determinant of the longer-term impact on commodities,” it added.

Ambit Institutional Equities, in its report, said that even if geopolitical tensions cool off, oil prices will remain elevated, with $80 being the new normal for Brent due to infrastructure damage, geopolitical risk premiums, and inventory restocking.

“While physical damage assessments to upstream and refining infrastructure remain preliminary, initial indications point to meaningful disruptions. Layering on this, geopolitical risk premiums are being embedded in near-term crude prices. At the same time, demand is being amplified by inventory restocking as importers rush to rebuild depleted SPR and OECD stocks. Taken together, these three factors underpin our view of sustained near-term crude price elevation,” it wrote.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)

The Reserve Bank of India’s (RBI) emergency intervention to arrest the rupee‘s freefall amid the Iran war has set up a potential Rs 4,000 crore hit to the banking sector, as lenders race to unwind billions of dollars in arbitrage positions before an April 10 deadline.

The rupee rebounded nearly 1% to 93.85 per dollar on Monday after the RBI capped banks’ net open positions at $100 million at the end of each business day, a dramatic tightening that forces lenders to dismantle large one-sided bets against the currency. But the banking sector paid an immediate price.

Nifty Bank tumbled 2.5%, with Axis, Kotak, and IndusInd Bank leading losses with 3% declines, while ICICI, HDFC Bank, and SBI fell around 2% each.

The directive comes as the rupee has depreciated roughly 10% this fiscal year and 3.5% since the Gulf conflict began, falling from 85.57 per dollar on April 1, 2025, to 90.98 by February 27, a day before the war started, ultimately hitting a record low of 94.84 last Friday.

The Mechanics of Pain

The potential losses stem from how banks had structured their foreign exchange operations. Lenders built substantial arbitrage positions by buying dollars in the onshore market at lower premiums and selling them in the offshore non-deliverable forwards market at higher premiums, exploiting the spread between the two segments. The size of such positions is estimated at $25 billion to over $50 billion, according to Reuters.
“We understand that the forex derivative market is dominated by larger banks (Indian banks like SBI, ICICI, HDFC, Axis, and leading foreign banks operating in India) with gross onshore positions of $30-40bn that offset each other,” wrote Prakhar Sharma and Vinayak Agarwal of Jefferies. “The normal trade is for banks to buy USD in the onshore market (at a lower premium) and sell/ square off in the offshore market (at a higher premium) to generate a spread and build depth in the market.”
The analysts warned that unwinding these positions could trigger mark-to-market losses in the fourth quarter. “Every Rs1/USD dual movement in INR on $30-40 bn of book can lead to a one-time loss of Rs 30-40 bn (Rs 3,000-4,000 crore) for the banking sector,” they noted. If the gap between rupee-dollar rates in the NDF market and the onshore market widens to Re 1 during unwinding, traders said banks could face losses of up to Rs 4,000 crore, reflected in current fiscal year books, as banks had calculated open positions after netting off hedged NDF trades.

Why the RBI Acted

The central bank’s intervention comes amid intense pressure on the rupee from multiple fronts. The currency has tumbled through key psychological levels in quick succession, pressured by surging crude oil prices and concerns that the Gulf war may not end soon.

The spread between offshore and onshore markets had widened significantly amid heightened volatility and risk aversion tied to oil-driven pressures linked to the Iran war.

“The measure compels lenders to scale back large positions and curbs their ability to build aggressive one-sided bets against the rupee,” said Jigar Trivedi, Senior Research Analyst at IndusInd Securities. “The intervention comes as the rupee has declined more than 4% over the past month, falling to around 94.82 per US dollar. Pressure has been compounded by sustained capital outflows, including over $11 billion withdrawn from Indian equities and record bond outflows of $1.6 billion in March, further weakening demand for the currency.”

Banks seek relief

The banking sector has sought leniency from the RBI on implementation. “Our conversations with banks indicate that the RBI is considering some relief, which may include grandfathering existing contracts and applying limits only to new contracts,” Jefferies analysts wrote. “It may also consider extending the deadline beyond April 10 to allow for smoother forex market movement and reduce MTM impact on banks.”

Most large and mid-sized banks with net open positions exceeding $100 million are expected to sell dollars to comply with the directive, potentially triggering a wave of onshore dollar selling as they rush to unwind arbitrage positions.

Not everyone views the potential losses as catastrophic. Fund manager Samir Arora offered a contrarian take: “Just relax about this supposed Rs 4,000 crore loss on FX unwinding. In just the past month, the INR has depreciated by over 4%. These positions would not have been set up for the first time at Friday’s close. Banks would be sitting on significant gains by now (which equity markets may not have fully priced in), and they will simply give up some of those profits. Big deal.”

Arora also suggested the impact may be concentrated elsewhere: “Some of the larger positions may have been taken by more aggressive foreign banks (like Citi, etc.). That’s not a major concern for our markets.”

The road ahead

While the RBI’s move may provide temporary support to the rupee, traders remain cautious about the currency’s trajectory. If the West Asia conflict persists and crude oil prices remain elevated, the focus could quickly shift back to the 96–97 per US dollar range in April as the next pressure zone, traders warned.

The unwinding may also create winners. Appreciation of the rupee in the NDF market could lead to gains for hedge funds and foreign banks in forex derivatives, Jefferies analysts noted.

For now, the central bank has bought breathing room for the rupee, but at a cost the banking sector is likely to bear in its Q4 earnings.